FRB Governor Elizabeth A. Duke Says Dodd-Frank Imposes Too Heavy a Burden on Community Banks Engaged in Mortgage Lending

Federal Reserve Governor Elizabeth Duke gave a speech before the Community Bankers symposium discussing the impact that new mortgage lending regulations and the Basel III capital proposals will have on community banks. Duke noted that while the Fed's analysis indicated the vast majority of community banks would already meet the new capital standards, she is concerned that the "totality of new mortgage lending regulations might still seriously impair the ability of community banks to continue to offer their traditional mortgage products."

Duke divided the potential burden of these mortgage lending regulations into three categories: (i) additional operational and compliance costs; (ii) restrictions on fees, interest rates, or other forms of revenue; and (iii) unintentional barriers to offering a service that result from regulatory complexity. Of these, Duke termed (iii) the "most disturbing," adding that if a regulation makes a traditional banking service so complicated or expensive that community banks believe they can no longer offer that service, it should spur policymakers to reassess the regulation's benefits against its costs. She stated that with respect to the impact on community banks, "addressing the problem will take more than a tweak here or an exemption there," but rather a different approach. As a result, Duke proposed that the best course for policymakers would be to establish a separate, simpler regulatory structure to cover mortgage lending by community banks. But she then concluded by saying that "regulators cannot, on their own, craft a new approach to regulating mortgage lending by community banks," suggesting in a very indirect manner that legislation might be required.

Click here to view speech in full (links externally to FRB website).